EUvsDisinfo: Strain beneath the surface: Russia’s economic pressures amid a continuing conflict
Kremlin strategists prepared well for a full-scale invasion of Ukraine: they built up foreign exchange reserves, then stimulated growth through military spending. As Moscow’s illegal war dragged on, however, the Russian economy began to show signs of weakness.
For years, Russian state media and pro-Kremlin commentators praised their country’s economy – how powerful it was despite Western sanctions, which were significantly strengthened after Moscow's full-scale invasion of Ukraine in February 2022. Initially, they had reason for optimism. Before the invasion, Russia accumulated huge foreign exchange and gold reserves to help it cope during the war. Then, in 2023 and 2024, the country recorded growth of 4.1%. The main reasons for this were complex schemes to avoid sanctions as well as “military Keynesianism“ – i.e. the Kremlin's decision to spend the reserve on military purchases: this provided a short-term economic boost.
Now, however, the reserves are running low and Russia's militarized economy is choking. The signs are everywhere. Interest rates are into double digits as the Central Bank of Russia tries to reduce inflationary pressures. The budget deficit is growing, and plans to raise revenue through taxes are likely to push inflation up. In addition, Russia's revenues from fossil fuel exports have fallen over the past year, adding to a long-term decline since the beginning of the invasion. Ukraine's strikes on Russian refineries have sent gasoline prices in Russia soaring to record highs.
However, pro-Kremlin commentators are not losing optimism. One of them recently said that “the Russian economy is a fortress“. Another stated that “Russia has proven the great strength of its economy“. One article even distorted a material in “Financial Times“ and concluded that the Russian economy has become a “gold mine“ for the “generation of winners“. In the authentic material, these phrases are not used. On the contrary – the article in –Financial Times“ reveals how Russian economic players, who often receive state subsidies, quickly “plundered“ the market, taking advantage of the reduced competition – they bought up assets left behind by Western companies leaving Russia after the invasion began.
Recently, Russian President Vladimir Putin declared that “the recession is still far away“. Let's see. Russia narrowly avoided a technical recession in the second quarter of 2025, the World Bank warns of long-term stagnation, and the Moscow stock market suffers sharp drops.
In the long term, the situation is getting worse. According to a report by the Carnegie Endowment Center, Russia plans to spend an impressive 8% of its GDP on defense and security, thus demonstrating that the war in Ukraine is a priority. To cover military spending, the government plans to increase taxes and borrow - all measures that will themselves entail a future price that will have to be paid. The budget also relies on some optimistic assumptions, such as a Brent crude oil price of $70 per barrel in 2025-27. The price now is close to $60. Every ruble spent on war cuts into spending on education, healthcare and infrastructure - areas that are important for future growth.
Propaganda campaigns to deny the effect of sanctions
Against this backdrop, Moscow is running campaigns of manipulation and propaganda on the subject of European sanctions. They are repeating the message over and over again that sanctions do not work and have never worked. That the Kremlin has things under control, that sanctions have even strengthened the Russian economy and turned Russia into an economic superpower. Russian intelligence services claim that EU experts have told the European Commission that sanctions against Russia are only hurting the bloc. In response to the 19th package of EU sanctions proposed in September, pro-Kremlin commentators have mockingly questioned why this new package of sanctions would work, given that previous ones had supposedly failed. One article speculates that the sanctions “have mainly punished European economies with persistent energy price inflation, trade tensions and a loss of competitiveness vis-à-vis emerging markets“. Other articles pushed the disinformation narrative that the EU will collapse after the 20th or 21st package and that Europe is “digging its own grave with these anti-Russian sanctions“.
Outside the Kremlin bubble, however, there is little doubt that the sanctions are having a gradual impact on the Russian economy. According to a recent report, the sanctions “have raised the cost of [Russia's] critical imports, reduced export revenues, and exposed the economy to the risk of increasing dependence on trade with China“. Russia's reliance on turbo-spending through military Keynesianism has clashed with chronic labor shortages, further fueling a domestic inflationary cycle“ driven by higher supplier costs for transportation, insurance, and the risk of sanctions.
The verdict is clear. The sanctions have pushed the Russian economy into serious headwinds. The end of this road may not be total economic collapse, but it certainly means economic stagnation and fewer resources for Putin's brutal war. Make no mistake: it is an undeniable fact that Putin's crusade against Ukraine has cost Russia dearly.
EUvsDisinfo/ translation: Representation of the European Commission in Bulgaria